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AT&T Nears $65 Billion Deal To Buy BellSouth
By Dionne Searcey, Amy Schatz, Almar Latour and Dennis Berman
The Wall Street Journal
Sunday, March 5, 2006

AT&T Inc. is nearing the acquisition of BellSouth Corp. for roughly $65 billion, people familiar with the situation said Saturday evening.  A deal could be announced as early as Monday, these people said.

Final terms of the deal could not be learned Saturday evening, but these people said AT&T Inc. would pay a premium for BellSouth shares of at least 15%, valuing the company at $36 per share at least, up from its trading price Friday of $31.46.  That would push the total equity value of the deal to at least $65 billion, plus the assumption of an additional $17 billion of BellSouth debt.

Spokespeople for BellSouth and AT&T declined to comment.

An AT&T-BellSouth deal would effectively cleave the nation's telecom services in two, each vertically integrated with a local phone operation, business services, and wireless unit.  And it would effectively validate the vision of competition laid out by the government -- one in which traditional telecom firms compete directly against cable operators rather than against each other.  The move would give AT&T Inc. sole control over Cingular, the nation's largest wireless operator.

A combination between AT&T and BellSouth could have combined market capitalization of nearly $160 billion, making AT&T far larger than rival Verizon.  The deal would nonetheless set a showdown between AT&T and Verizon, as the two fight to control wireless, the growth portion of the telecom business.

It was the steep growth of Cingular -- joint owned by BellSouth and the former SBC -- that helped push the two firms together, say telecom bankers familiar with the space.  As the importance of the wireless business grew, they say, it became inevitable that SBC (which adopted the AT&T name just months ago) would consolidate its position in the South.

Put together, the SBC territory would extend from California to Florida, north to Illinois and south to Texas.  Combining the two companies' current market capitalizations, AT&T would have a market value approaching $150 billion, over 50% greater than Verizon.

AT&T Chairman and Chief Executive Edward Whitacre has made a name for himself in the telecommunications industry as a serial acquirer.

Mr. Whitacre is able to boast of a string of acquisitions including Pacific Telesis Corp., Ameritech Corp. and Southern New England Telecommunications Corp.  But as he nears retirement, the market had been anticipating one last hurrah from him;  a BellSouth acquisition by AT&T has long been the subject of speculation from analysts, investors and the two companies' rivals.

Still, the speedy move to acquire BellSouth came as a surprise so soon after Mr. Whitacre's takeover of AT&T Corp. last fall.  His company is just starting to digest the $16 billion acquisition.  The former SBC Communications Inc. took over AT&T Corp. and adopted the AT&T moniker.  The new company dominates nearly every aspect of the industry, from high-speed Internet connections to long-distance phone service, as well as wireless.  And Mr. Whitacre now has access to the old AT&T's enterprise business and world-wide network.

Such a deal would likely prompt howls of protest in some quarters as it comes on the heels not only of the AT&T-SBC deal but also after Verizon Communications Inc.'s acquisition of MCI.  Those deals were approved with only a few minor conditions despite concerns they would lead to higher prices for business customers.

The wave of mergers has dramatically reshaped the telecom industry, and a purchase of BellSouth would further cement the recreation of the old Ma Bell, which the government pushed to break up in 1984.

The management of AT&T, which has apparently briefed key senior government officials late last week, appears to be betting that the Bush administration and a Bell-friendly Federal Communications Commission won't raise too many obstacles for such a deal, arguing that the companies serve different geographic regions and do not currently compete with one another in a significant way.

Although AT&T and Verizon's last mergers passed both FCC and Justice Department review with little major problems, the latest proposed merger may face more hurdles.  Recent comments by AT&T and BellSouth executives about their intentions to explore new revenue streams from their high-speed Internet services by introducing two-tier or "premium" service for Internet content providers.  Concerns about those plans and the concept of "net neutrality," or ensuring that consumers have open access to all Internet sites and services and businesses do not find their content slowed, has become a major problems for the Bells in Washington.

Meanwhile, the FCC that will be reviewing the AT&T/BellSouth deal will likely be a much different body soon with the addition of Robert McDowell, a veteran telecom lawyer who currently serves as assistant general counsel at Comptel, which represents smaller telephone companies and was a vocal opponent of the AT&T and Verizon mergers last year.

Mr. McDowell is scheduled to appear before a Senate committee on Thursday for his confirmation and is likely to be asked about the merger.  Although Mr. McDowell is a Republican, his nomination to the FCC was met with noticeable unease by the Bell companies, which have privately expressed some concern his experience working with smaller competitors may make him less than sympathetic to their concerns.

Write to Dionne Searcey at, Amy Schatz at, Almar Latour at and Dennis Berman at


How They Stack Up
(Note:  A portion only.)

An AT&T-BellSouth deal would create a telecom giant with a local phone operation, business services and wireless unit, and could have a combined market capitalization of nearly $160 billion.  Here's how the telecom companies compare.

AT&T Inc.

In 1876, after Alexander Graham Bell's invention of the telephone and the founding of the company that became AT&T.

Headquarters:  San Antonio, Texas

Chairman, CEO:  Edward Whitacre

Employees:  189,950 world-wide

Key Brands:  The move would give AT&T sole control over Cingular, in which it currently owns 60%.

Stock:  Trades on the NYSE under the symbol "T".

Net Income:  $1.66 billion in the fourth quarter of 2005.

Revenue:  $12.97 billion in the fourth quarter of 2005, excluding Cingular's sales and including the full quarter for the former SBC and six weeks of results for the former AT&T.

Key Events:  The Bell System was divested in 1984 by an agreement between the former AT&T and the U.S. Department of Justice.  AT&T agreed to divest itself of its local telephone operations but retain its long distance, R&D and manufacturing arms.  Out of the divestiture, SBC Communications Inc. (formerly known as Southwestern Bell Corp.) was born.  The former SBC Communications Inc. took over AT&T Corp. on Nov. 18, and adopted the AT&T moniker.

BellSouth Corp.

Founded:  1984

Headquarters:  Atlanta, Ga.

Chairman, CEO:  F. Duane Ackerman

Employees:  About 63,000

Key Brands:  Joint control and 40% ownership of wireless voice and data provider Cingular Wireless.  Subsidiaries include wireline communications provider BellSouth Telecommunications Inc.and long-distance provider BellSouth Long Distance Inc.

Stock:  Trades on the NYSE under the symbol "BLS".

Net Income:  $618 million in the fourth quarter of 2005.

Revenue:  $5.24 billion in the fourth quarter of 2005, excluding Cingular.

Sources:  the companies, research

Two Decades of Telecom Deals

Before 1984
AT&T owns 22 local Bell telephone companies -- a near-monopoly on local, interstate and long-distance phone service, though long-distance competitors including MCI, GTE and a precursor to Sprint existed.  AT&T opens the first commercial cellphone system in Chicago in 1983.

Following an antitrust suit, the Justice Department divests AT&T of the 22 companies, and transfers ownership to seven Regional Bell Operating Companies.  These companies are banned from selling long-distance service.

Sprint begins transatlantic long-distance service, making some competition for AT&T.  That same year, WorldCom goes public through a merger with Advantage Cos.

AT&T enters the nascent wireless game with the acquisition of McCaw Cellular, which it renames AT&T Wireless.

The Telecommunications Act of 1996 allows the Bells to compete in long-distance.  Years of mergers among the Bells follows.

The merger of WorldCom with MCI wins approval.

GTE Wireless, Bell Atlanta Mobile and Vodafone AirTouch combine to form Verizon Wireless.  Also that year, SBC and BellSouth merge wireless operations to form Cingular.

Verizon Communications is formed by a merger between Bell Atlantic and GTE.  Meanwhile, a proposed merger between MCI WorldCom and Sprint is barred on antitrust grounds.

It's a big year for telecom news:  AT&T Wireless is spun off into separate company;   VoiceStream buys Deutsche Telecom, which it renames T-Mobile in 2002;  and WorldCom files for Chapter 11 protection.

Struggling AT&T announces plans to stop marketing consumer long-distance service.  Meanwhile, WorldCom, now MCI, emerges from Chapter 11.  Also, merger mania kicks off as Cingular acquires AT&T Wireless, and Sprint agrees to acquire Nextel.

The string of telecom mergers continues:  SBC agrees to buy AT&T Corp. and adopts the AT&T moniker, and Verizon Communications agrees to acquire MCI.

AT&T Inc. nears a deal to acquire BellSouth Corp. for roughly $65 billion, in an agreement that would give AT&T sole control over Cingular, the nation's largest wireless operator.